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When OFAC issues new guidelines organisations need to act fast

15 August 2019

OFAC recently announced its Reporting, Procedures and Penalties Regulations (RPPR) that outlined the recordkeeping and auditing functions for trade financiers and others to follow and adhere to.

The RPPR notice states that trade financiers must now report rejected transactions to OFAC if they could be prohibited by sanctions. This is a new requirement for trade finance departments to implement as part of their day-to-day activity. Previously there was no obligation to report a rejected trade but that has now changed. This new requirement has recently undergone its review period (ended on July 22nd) and is now awaiting any final amendments of modifications.

Whilst OFAC reviews comments and possibly initiates amendments, they have already taken the request for information regarding rejected transactions seriously. For example, the delivery of accurate and complete information to the regulator and diligence in the handling and review of documentation are now coming under the compliance and regulatory microscope.

In this context, when OFAC asks for something, they expect it as both DNI Express Shipping and Southern Cross Aviation have found out recently.

Southern Cross Aviation was engaged in a communication with OFAC regarding helicopters being shipped to Iran via an 'Iranian businessman'. OFAC issued a subpoena requesting certain documents and material but was ultimately unimpressed with the Southern Cross response. Hence, an OFAC finding of violation of the RPPR.

For DNI Express Shipping, a similar violation was also raised concerning farm machinery being transported to Sudan. OFAC mentioned in their finding a series of misleading and contradictory statements and responses to their requests for information relating to the transaction. Again a violation of the RPPR notice.

Both organisations were deemed to have shown a reckless disregard for US sanction requirements. Even so, no penalty fine was issued but the enforcement action highlights 'the compliance obligation of persons subjected to RPPR and the need to cooperate with OFAC investigations'.

Its highly likely that there will be further violations of the RPPR published by OFAC. There is a strong correlation between the OFAC RPPR announcement in June and the two findings of violation issued due to the amended RPPR in August.

What the two company examples above reiterate, is the need for organisations to be compliant with OFAC but also to have procedures in place that collate and document the transaction screening process.

For most banks and financial institutions who work quickly and at scale with each trade transaction, the management of documents can sometimes fall between the cracks. A high-volume trade business requires an appropriate level of screening and a process that can be documented and audited in case of future requests by OFAC. For organisations screening hundreds and thousands of transactions per day, an integrated workflow solution that provides the ability to create notes, show how the bank's hierarchy deals with potential sanction issues and monitors and collates the changing workflow regarding export shipments is imperative.

Without such a workflow in place it becomes extremely difficult to comply successfully with a request for information during an OFAC investigation. Whilst RPPR seems to be a highly technical, minor change it is in reality very important as both Southern Cross and DNI Express Shipping have found out.

Posted by Byron McKinney, Associate Director Maritime & Trade Product Management, IHS Markit

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